Lumber Industry Perspective
2nd Quarter 2014
Lumber prices move little in Q2
By Jesse Marzouk
Lumber prices held
steady throughout the
second quarter of 2014.
The
Random Lengths
Framing Lumber Composite Price (FLCP), which
includes prices from a
variety of softwood framing species, ended at
$377 per thousand board
feet (MBF) after starting
the quarter at $378 per
MBF. The range of prices
was very tight, with the
FLCP moving between
$362 and $382 per MBF.
After more than six
months of review, the Department of Justice (DOJ) struck
down the proposed acquisition
of Ainsworth Engineered by
Louisiana Pacific (LP). The
DOJ cited the likelihood of increased pricing of oriented
strand board (OSB) in the pacific northwest and the Midwest,
where the proposed entity
would have a large market
share. Apparently LP refused to
alter the terms of the agreement
when the DOJ required divesting certain mills in order to receive approval for the merger.
The refusal to allow the acquisition was an interesting
one in Hilco’s opinion. Except
for a brief and short-lived spike
in OSB pricing in the beginning
of 2013, prices have remained
relatively muted. The industry is
not very concentrated and the
acquisition would have created
the largest North American OSB
producer with less than 35%
market share. The DOJ has
approved mergers in the containerboard industry over the
last few years that resulted in
International Paper having a
market share of approximately
35% and a very concentrated industry with the top four producers maintaining more than
70% of industry capacity. Lastly, a number of other producers
still have OSB mills that are
shuttered and can be brought
online as the housing market
continues its recovery. This
would have diluted the market
share of a combined LP/
Ainsworth entity. It will be interesting to see if this decision by
the DOJ extends to other industry proposals including Verso
acquiring NewPage and
Caraustar acquiring Newark
Group.
Jesse Marzouk is a vice president and forestry products specialist. He has
appraised numerous U.S. and Canadian pulp, paper, and lumber-related companies
involved in manufacturing and distribution. Jesse received his MBA in finance from
Kellogg School of Management at Northwestern University, and has a degree in
finance and accounting from Indiana University.